Consumer Credit Bill - Standing Committee D

[David Taylor in the Chair]

Consumer Credit Bill

David Taylor: I have one or two preliminary announcements. I remind the Committee that there is a money resolution and a Ways and Means resolution in connection with the Bill, copies of which are available in the Room. I also remind hon. Members that adequate notice should be given of amendments. As a general rule, my co-Chairman and I do not intend to call starred amendments. Finally, all hon. Members should ensure that mobile phones, pagers and related equipment are turned off or on silent mode during the Committee’s proceedings.

Gerry Sutcliffe: I beg to move,
That—
(1)during proceedings on the Consumer Credit Bill, in addition to its first meeting at 8.55 a.m. on Thursday 23rd June, the Standing Committee shall meet at—
(a)2.00 p.m. on Thursday 23rd June;
(b)10.00 a.m. and 4.30 p.m. on Tuesday 28th June; and
(c)8.55 a.m. and 2.00 p.m. on Thursday 30th June;
(2)the Bill be considered in the following order, namely, Clauses 1 to 55, Schedule 1, Clauses 56 to 59, Schedule 2, Clauses 60 to 69, Schedule 3, Clause 70, Schedule 4, Clause 71, new Clauses, new Schedules and remaining proceedings on the Bill;
(3)proceedings on the Bill shall (so far as not previously concluded) be brought to a conclusion at 5.00 p.m. on Thursday 30th June.
I welcome you to the Chair, Mr. Taylor. Most mornings, I have the great pleasure of taking my breakfast with you. I know that that will not affect the impartiality of your approach to the Committee, but it is good to know that a friend sits in the Chair.
As you will know from Second Reading, we all care about the Bill, which means a lot to our constituents. We have consulted on it extensively with the industry and consumer groups, and I know that the Committee will look in great detail at many of the issues that were raised on Second Reading.
I am delighted, Mr. Taylor, that your co-Chair is the hon. Member for Old Bexley and Sidcup (Derek Conway). Like me, he is a former Whip. I used to work with him in the Whips Office, so I feel at home with the Chairs of our Committee.
I am pleased to welcome the hon. Member for Wealden (Charles Hendry) as the Opposition Front-Bench spokesperson. I know that he will bring words of wisdom to the Committee during our deliberations. I am also happy to see the Opposition Whip and my own Whip working closely together to ensure, I hope, that the Bill’s passage is speedy, but thorough.
I welcome the hon. Member for North Norfolk (Norman Lamb), who leads for the Liberals, and his colleague, the hon. Member for Argyll and Bute (Mr. Reid). I extend a special welcome to the new Members of Parliament who are serving on the Committee. I hope that they will enjoy it and that their experience will stand them in good stead in the House. They will see at first hand how Bills are scrutinised line by line.
There is a great deal of knowledge and expertise in the Committee. That is certainly true of the experienced Members on the Labour Benches, and I look forward with interest to the many points that they will raise with me. I always say that it is good to have been a Whip, because I still have the files on many of my older hon. Friends. If we disagree, I am sure that I can find ways of convincing them.

Charles Hendry: I join the Minister in welcoming you to the Chair, Mr. Taylor? Conservative Members also look forward to serving under your chairmanship and that of my hon. Friend the Member for Old Bexley and Sidcup. At times, the Minister probably had a more harmonious relationship with my hon. Friend, Whip to Whip, than some Conservative Back Benchers did. It remains to be seen quite how things will work in Committee, although I have dined with my hon. Friend rather more often that I have had breakfast with him. I tend to have breakfast with my children, which is not quite so useful for gaining an insight into how the Committee may be run. Indeed, our conversation this morning was about how to pronounce diplodocus, the name of a type of dinosaur. That might be useful for certain aspects of politics, but it is not particularly useful for dealing with consumer credit legislation, although I know that some Labour Members see the Conservative party as close to the dinosaurs. Let us pass swiftly over that, however, and deal with the meat of the Committee.
I am extremely grateful to the Minister for his generous words, and I shall endeavour to live up to them. Throughout our discussions so far, he has shown a determination to take a constructive and co-operative approach, and we welcome that. This is important legislation, and we all welcome the attempt to ensure that both sides of the House agree wherever possible. Nevertheless, we are a little disappointed that we have not seen more detail so far. That issue came up regularly on Second Reading, and I think that it will recur in Committee. I hope that the Minister can be tempted, despite his Whip-like resolution, to give us more detail on some areas. The industry and borrowers are both keen to have that in order to understand the full implications of the legislation and the way in which it will move forward.
The Bill has already had a Second Reading and been through Committee in the last Parliament, when my hon. Friend the Member for Tewkesbury (Mr. Robertson) tabled many amendments. We do not plan to revisit the issues raised then as many people would see that as a waste of time—the Minister showed that he was unwilling to give way and amend the legislation  on many issues—but we have tabled a range of new amendments that go to the heart of relevant issues, particularly that of clarity.
In general, following discussions with the Minister and through the usual channels, we are satisfied with the programme motion and the time that has been made available to us.

Norman Lamb: I, too, welcome you to the Chair, Mr. Taylor. I am sure that it will be a pleasure for all of us to serve under your wise chairmanship.
I shall keep my remarks short. The arguments have been rehearsed many times, so they do not bear repeating too many more times. There is a substantial measure of agreement about the Bill and its value and importance. It is long overdue, so it is good that it comes now. None the less, it does not cover two areas with which there are significant problems. The first is data sharing, which seems to be at the root of the problem for many people who get into real difficulties taking on debts with substantial numbers of lenders. They end up with cumulative debts that they cannot manage, yet that information has not been shared adequately.
A solution could be achieved through voluntary agreement by the industry, perhaps with a steer from the Minister to push it in the right direction. The banking code is there to achieve such things; I believe that Which? put forward a sensible, practical suggestion that there could be a standard wording in credit agreements to allow borrowers to consent to the sharing of information in return for commitments as to how it would be shared and the limitations on that. What does the Minister have to say on that? If there were some encouragement from him, there might be some progress. The issue has been talked about for a long time, but no progress has been made.
The other issue that is not covered in the Bill is the calculation of interest. It is great that there is a single APR on credit cards, but that is pretty meaningless in terms of achieving greater transparency if there are 10 different methods of calculating interest. No one can tell from the single APR what the interest cost will be. Unless there is a move toward a scenario in which one can see the cost of credit in pounds and pence, or there is a measure of agreement, perhaps through the banking code, on a single method of calculating interest, there will still be a complete lack of transparency in terms of borrowers understanding how much credit will cost them. I would welcome a response from the Minister on how he sees those outstanding issues being tackled.
I share the concerns of the hon. Member for Wealden about lack of clarity, specifically surrounding the test of unreasonableness and how it will be interpreted. It seems to me that it will end up being interpreted by a court, so that courts will be giving guidance rather than Parliament. That is not an attractive proposition.
However, we are happy with the programme motion, given that it has been debated so often. I would welcome a response from the Minister.

Gerry Sutcliffe: I am pleased that the Opposition find the timetable appropriate, and I welcome the comments about not going over old ground in too much detail. I shall try to answer in Committee and, ultimately, on Report the charge of lack of clarity.
We must be careful about seeing the Bill in isolation from the other things that are taking place around consumer credit, consumer and financial education and indebtedness. Hon. Members may be aware of the indebtedness strategy that the Government announced last year. We are also trying to do many other things to co-ordinate a response, particularly to those people who find themselves in hardship.
The issue of data sharing to ensure that there is some movement is close to my heart, so I shall be pushing it during discussions on the Bill and elsewhere.

Norman Lamb: I wonder whether the Minister would say whether that idea could work. What advice has he had on that matter? Is it worth discussing it with the industry?

David Taylor: Order. I think that the issues being raised are probably relevant to the clause to be debated later on.

Gerry Sutcliffe: Thank you for your guidance, Mr. Taylor—and for my not having to answer the question. That is always helpful. We will return to that matter later in the debate, but there are clearly issues that we need to discuss. The programme motion is appropriate and I look forward to a considered debate.

Question put and agreed to.

Clause 1 - Definition of “individual”

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: Clause 1 amends the definition of “individual” in section 189(1) of the Consumer Credit Act 1974. The definition is important, because an agreement is only a consumer credit, or consumer hire, agreement as defined by the Act and is, therefore, capable of being regulated by the Act if the debtor or hirer under the agreement is an individual under the definition in section 189(1). The current definition gives an extended meaning to “individual”, including partnerships and other unincorporated bodies or persons of any size, so long as the members of the partnership or unincorporated bodies are not exclusively bodies corporate.
Bodies corporate are not included in the definition of “individual”, so they have no protection as debtors or hirers under the Act. Medium-sized and large partnerships, as hon. Members will know, are often highly sophisticated businesses, such as international firms of lawyers and accountants, which can look after themselves and do not require the protections afforded to ordinary consumers. Having said that, the Government recognise the need to foster and protect small businesses to encourage enterprise in Britain. In order that they may grow, many small businesses  require access to ready credit, such as credit cards or hire purchase. Many of those starting out in business operate with little distinction between their private and business lives. Such businesses also have similar or lower levels of credit equities and face similar risks to ordinary consumers in relation to their borrowing. That is why the clause amends the definition of “individual” to include partnerships of only three or fewer people.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.

Clause 2 - Removal of financial limits etc.

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: The clause removes the current financial limit for regulation under the 1974 Act. The financial limit defines those consumer credit and consumer hire agreements that are currently protected under the Act. At present only agreements providing credit or requiring hire payments up to the £25,000 limit are protected. The initial limit of £5,000, which was a considerable sum in 1974, was raised to £15,000 in 1985, and the current £25,000 limit was introduced in 1998. For many consumers £25,000 is no longer a substantial amount of borrowing. The average debt consolidation loan now exceeds that sum. Clauses 1 and 2 remove the financial limit that applies to consumer credit and hire agreements.

Question put and agreed to.

Clause 2 ordered to stand part of the Bill.

Clause 3 - Exemption relating to high net worth debtors and hirers

Charles Hendry: I beg to move amendment No. 1, in page 2, line 8, leave out ‘the agreement includes’.

David Taylor: With this it will be convenient to discuss the following amendments: No. 2, in page 2, line 8, after ‘declaration’, insert ‘is’.
No. 3, in page 2, line 14, after ‘agreement’, insert
‘at the time that agreement is signed’.
No. 4, in page 2, line 26, at end insert
‘unless supported by independently verified documentation’.
No. 5, in page 2, line 29, leave out ‘one year’ and insert ‘two years’.
No. 6, in page 2, line 39, leave out
‘must have been made in relation to each of them’
and insert
‘may be made by either of them’.

Charles Hendry: The clause relates to the exemption for high net worth debtors and hirers on agreements undertaken by people of a high net worth, who are  currently exempt from the regulation under the 1974 Act providing certain tests are met and that the individual makes a declaration agreeing to forgo the protection offered by a regulated agreement.
We agree in principle with the exemption. It is a key factor for British business and UK lending institutions. Many people of high net worth come to the United Kingdom because of the nature of our financial systems and structures, and we need to protect that industry without neglecting the interest of customers. The measure is crucial to maintain what we in the UK call large sum borrowing; otherwise people may shift their custom to offshore centres, which could prove damaging to our economy.
We need to understand the nature of such people. They are mobile, often have more than one home and borrow huge sums at very short notice, and there is no shortage of people keen to lend to them. If we make it hard for them to borrow in the United Kingdom, there are plenty of other places. That world may not be familiar to Members of Parliament, although the new Northern Ireland Minister may know it; but those who discover themselves on a Caribbean island with a spare butler but are not quite sure what to do with him may decide instead, and at short notice, to buy a new yacht. The circumstances in which such issues arise are not common, but they are important for those affected. If delays are built into the system, people can turn elsewhere and borrow from other sources.
We are keen to have more detail on what the Government have in mind, particularly about the specified amount of income and assets mentioned in subsection (2)(a) of proposed new section 16A, which states:
“received during the previous financial year income of a specified description totalling an amount of not less then the specified amount”.
It would help if the Minister were to say what he has in mind about specified amounts.
Under the Bill, the declaration must be made in the agreement itself, which will place an unnecessary bureaucratic burden on credit and hire businesses. Lenders would be forced to maintain a separate suite of agreements containing the specified declaration, a process that would prove costly and time-consuming, yet time is often of the essence as people want the money quickly. Such costs are likely to be passed on to the consumer, and the time involved would drive people elsewhere.
The changes proposed in amendments Nos. 1 and 2 would allow the declaration to be made in a separate document, which would be sensible and in the interests of consumers. The document would be lodged permanently, and borrowers would merely have to confirm that it still applies, as set out in amendment No. 3, by adding in the words
“at the time that agreement is signed”.
 Subsection (3)(a) provides that a statement:
“may not be made by the person in relation to whom it is made”.
Amendment No. 4 would add the words:
“unless supported by independently verified documentation”.
That seeks to address the issue of too much bureaucracy; it would allow greater flexibility yet still protect the interests of the consumer.
Amendment No. 5 would allow for greater flexibility by extending the life of such statements to two years rather than one, especially as protections are already included.
Finally, amendment No. 6 is about life partners. We think it appropriate that if life partners such as a husband and wife borrow jointly, but the income is concentrated in one individual’s name, that only one partner need certify. In other words, certification would not be necessary for both partners. The declaration would still be a mandatory requirement, so there would be no detrimental effect upon consumer protection. In fact, providing the declaration in a separate document is more likely to draw attention to its meaning and substance.

Gerry Sutcliffe: May I say at the outset that I understand where the hon. Gentleman is coming from. However, the amendments may be misconceived.
It is important is that the declaration forms part of the agreement at the time when it is made. Amendment No. 1 would make the declaration separate to the agreement. It could mean that consumers were provided with the required declaration at a different time, and that they may not necessarily have to sign it at the same time. That could create confusion.
The clause does not require lenders to prepare a separate collection of agreements specifically for high net worth debtors. Lenders are free to prepare agreements in the manner that they find most convenient so long as they comply with the relevant legal requirements. It is important that the declaration is made at the same time that the agreement is made.
Amendment No. 2 is in a similar vein, It proceeds on an incorrect assumption and seems misconceived. I hope that that theme is not adopted throughout the Committee stage.

John Battle: I am sure it will be.

Gerry Sutcliffe: Perhaps so; I shall try to find other words to describe the amendments.
It is important that the declaration forms part of the agreement at the time it is made. Like amendment No. 1, amendment No. 2 would allow the declaration to be separate from the agreement. Amendment No. 3 involves the same point: it is important that the agreement should be made at the same time as the declaration.

Charles Hendry: Does the Minister fully understand the nature of the agreements? People want to borrow substantial sums at short notice. If they must go through a process of extensive paperwork, which might often include having to file it while abroad and get it verified and sent back here, they will simply go to other lending markets where they can get the money without that system of bureaucracy. We are talking about an important part of a British industry. Does the Minister understand the danger of his approach?

Gerry Sutcliffe: I do. In previous discussions we discussed the provision as the helicopter clause—because it might apply to people who wanted to buy or hire a helicopter at short notice and did not have ready funds available. They could step outside the normal protections to get the high-worth definition. I understand the hon. Gentleman’s argument. We received an approach from the industry to prevent a move out of the market to foreign parts, perhaps elsewhere in Europe, and we were careful to allow discussion about ensuring that rights would be protected and that there would be flexibility. We are happy that the clauses are appropriate and proportionate.

Norman Lamb: The Minister says that the measure was a response to representations from the industry. Was the framework in the Bill discussed with the people whom the Minister’s Department spoke to, and did they say that they would be satisfied with it?

Gerry Sutcliffe: Clearly, there has been a great deal of discussion, throughout, from the time of the consumer credit White Paper, about issues affecting the consumer credit market, which is very mature in the UK compared with what is happening elsewhere in Europe and the wider world. An approach was made and we listened sympathetically to what was said; we think that we have arrived at the most proportionate and flexible solution that still safeguards consumer rights.
I am happy with what we have established. I understand what the hon. Member for Wealden says, but matters would be further complicated because of the two types of agreement. He asked about consultation on the figure that we had in mind, and we shall consult further on that in detail in relation to the statutory instruments that will arise from the Bill. We originally proposed a gross annual income of £100,000 and net assets of £250,000. Those could not be in non-liquid assets such as the person’s share in the principal  home and pension funds. The figures reflect those used by the Financial Services Authority to define a sophisticated investor.

James Brokenshire: The regime that is being created with respect to high net worth debtors, or high net worth individuals, is, as far as I can see, quite similar to provisions in the Financial Services and Markets Act 2000 about what is meant by financial promotion and agreements where it would be sensible for a sophisticated investor to be excluded. As to what the Minister said about thresholds, some consistency between the two regimes is needed; will he comment on whether they are consistent with each other?

Gerry Sutcliffe: We believe that to be the case, and that is the reason for setting the figures in question, but we are prepared to consult on whether they are appropriate, during the period relating to the statutory instruments. The expertise that the hon. Gentleman brings to the Committee, in the form of knowledge of the FSA, is welcome.
There is nothing to stop the borrower lodging the current statement of high net worth with a lender and leaving it with him as long as it is current, but borrowers should make the declaration each time they enter into an agreement, stating where they want the advantage or the exemption. The two should lie alongside each other.

Charles Hendry: For further clarification, is the Minister saying that, once the documentation has been filed and lodged, it can be used for separate borrowing? In other words, if he wants to borrow for a helicopter this week and a yacht in two weeks’ time, as one does, once that documentation has been lodged, will it be sufficient to confirm that it still applies on subsequent occasions, or would all the documentation have to be resubmitted on a second occasion?

Gerry Sutcliffe: At each point where the borrower wants to have an exemption, a declaration would have to be made. A statement of net worth would have to be current. If there had been changes, it would be the borrower’s responsibility to notify the lender of those changes at the time that he wanted to declare an exemption for a new agreement. I do not know if that helps the hon. Gentleman.

Michael Penning: As a new boy, I want to be a sponge and listen to everything. It seems to me that you accepted that there may be a threat of business going to other European lending centres. I am very worried that we are going to force business away not just to the European market but to other lenders around the world, especially in the Caribbean and offshore lending countries. Are you certain that this profitable—

David Taylor: Order. The hon. Gentleman should refer to the Minister in the third person.

Michael Penning: Is the Minister sure that we are not going to damage British businesses by allowing other companies to take away this profitable business?

Gerry Sutcliffe: I am very confident that that will not happen. That was the sole purpose of getting involved in these discussions: to ensure that that group of people with high net worth were dealt with differently. We have a mature market in the UK. We do not want to damage that. That is why we listened to what the industry had to say to us.

John Battle: I wonder whether I have come into the right Committee, because I noticed that, in a letter in last night’s Evening Standard, Tim Montgomerie said that
“the person who wins the crown of the Tory leadership will be the person who demonstrates a real heart for society’s most vulnerable people.”
Yet the first amendment we get to is about yachts and helicopters. Can the Minister assure me that this Bill is not the Bill to sort out Abramovich poaching players from other clubs and that it is not about that short-term money? I say to the hon. Member for Wealden that there are other ways in which rich people can get money to do the deals that they want to do. We ought to sort them out in other ways, not through this Bill.

Gerry Sutcliffe: I am grateful to my right hon. Friend for bringing us back to the main purpose of the Bill, which is transparency, responsible lending and borrowing. The Opposition, however, have raised fair points on this issue.
To clarify, the statement of high net worth is a different document from the declaration. If one has a statement of high net worth, every time one wants to use that facility, one has to have a different declaration. That declaration has to be current.
I hope that, with those explanations, the hon. Member for Wealden will accept that his amendments are not necessary and that he should not press them to a vote.

Charles Hendry: It is lovely to hear the voice of old Labour still resonating in this Room. I understand where the right hon. Member for Leeds, West is coming from, but he should be assured that we are thinking not of the interests of the Conservative party, but of the Prime Minister’s friends—the people whose villas he borrows when he is on holiday. We are considering the matter from a very wide perspective, which I hope he will appreciate.
I press the Minister to look at the matter one more time. There are concerns within the industry, which is an important sector. An important area of British business could be lost. Will he consider tabling an amendment on Report so that, if there are signs that business is being lost, the measure could be amended through regulation? That way, we would not be tied in permanently. The original Act has been in place for 31 years. This is not an area that we are likely to address again in the short term.

Gerry Sutcliffe: I am happy that, on the basis of the discussions that we have had with the industry, we feel that we have reached an appropriate agreement but, during the passage of the Bill, we will always look at what has been said to us by members of the Committee and stakeholders outside. If there is a view that we have not got things completely right, we will consider that. However, I think that we have got the Bill right as it stands and I therefore ask the hon. Gentleman to withdraw his amendment.

Charles Hendry: I realise that I am not going to persuade the Minister on this occasion. I am sure that, as the consideration of the Bill progresses, he will see the light, but it is clear that he is not going to back down on this amendment. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.
Clause 3 ordered to stand part of the Bill.

Clause 4 - Exemption relating to businesses

Charles Hendry: I beg to move amendment No. 7, in clause 4, page 3, line 13, leave out ‘an agreement includes’.

David Taylor: With this it will be convenient to discuss amendment No. 8, in clause 4, page 3, line 13, after ‘declaration’, insert ‘has been’.

Charles Hendry: We have tabled the amendments to deal with procedural issues relating to declarations in respect of business lending. Definition is one of the big issues. Some borrowing can clearly be seen as personal, such as borrowing for expensive jewellery, and some is clearly business, such as borrowing for a new printing press, but some could be either. The Minister mentioned a helicopter. That helicopter could be for personal, or business use.
Under the clause, the credit agreement provided to businesses will be exempt from regulation unless it is for a value of less than £25,000. Again, we welcome that measure because it allows businesses the flexibility that they need to pursue their interests, to invest, to develop and to respond to natural peaks and troughs associated with trading.
New Section 16B(2), which will be inserted by clause 4, will provide that a credit or hire agreement will be presumed to be wholly or predominantly for business purposes where it includes a declaration by the debtor or hirer to that effect. New section 16B(3) provides for circumstances in which the presumption would not apply. We support the creation of such a presumption of exemption, but for the exemption to be effective, the provision requires the declaration to be made in the agreement. That is unnecessary and over-bureaucratic because, again, lenders will need to maintain a separate suite of agreements containing the specified declaration. That produces the same unnecessary burdens on lenders as referred to in relation to clause 3.
Amendments Nos. 7 and 8 are essentially similar to amendments Nos. 1 and 2 and may therefore produce a similar response from the Minister. They seek to reduce the red tape and costs on business by allowing the declaration to be made in a separate accompanying document. That provides greater flexibility and scope for quicker decisions, which must surely be our objective. Again, such a measure would have no detrimental impact on consumers. The mandatory requirement that the clause sets out to achieve remains in place.

Gerry Sutcliffe: I understand why the hon. Gentleman has tabled the amendment, given that it is consequential on the previous amendments, but it will come as no surprise to him that I am going to give the same response that I gave earlier. We feel that we have achieved the right balance. I will honour my undertaking to consider the matter, but clearly the same argument applies. On the proviso that we will consider the matter in the context that I mentioned, I hope that he will withdraw his amendment.

Charles Hendry: I am grateful to the Minister for agreeing to consider the matter further and I look forward to dealing with it on Report. Hopefully, he will come forward with some additional thoughts then. With that assurance, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.
Clause 4 ordered to stand part of the Bill.

Clause 5 - Consequential amendments relating to ss. 1 to 4

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: The clause makes various consequential amendments to the 1974 Act arising out of clauses 1 to 4. Subsection (7) will give the Secretary of State the power by statutory instrument to increase the £25,000 limit in relation to the regulation of business lending involving small businesses.

Question put and agreed to.

Clause 5 ordered to stand part of the Bill.

Clause 6 - Statements to be provided in relation to fixed-sum credit agreements

Gordon Banks: I beg to move amendment No. 33, in clause 6, page 4, line 35, at end insert—
‘(c)shall, where the term of the credit agreement is more than one month but not more than twelve months, give the debtor a statement under this section within 14 days of the mid point of the term of the agreement.’.

David Taylor: With this it will be convenient to discuss amendment No. 34, in clause 6, page 5, line 7, after ‘(a)’, insert ‘or (c)’.

Gordon Banks: I would like to outline a brief summary of the problem, its solution and the reasoning behind amendments Nos. 33 and 34. Clause 6 places a requirement for regular information provision from lenders through annual statements, providing their annual credit is held in excess of 52 weeks. Information must include an annual statement as to what is owed and failure to provide this information will result in significant penalties being placed on the lender.
The problem is that, if the loan is for less than 12 months, the Bill does not help. Short-term loans are often aimed at low-income earners and therefore clause 6 could discriminate against those with lower incomes. In order to avoid the new regulations, I fear that lenders may introduce shorter-term loans for a period of less than 52 weeks—for 50 weeks, for instance—to negate the requirement to supply that information.
All too often, doorstep loans are taken up by the most deprived in our communities and typically they are for less than 52 weeks. To my mind, the solution is an amendment that proposes a mid-term statement for loans for a period of less than 12 months. That would prevent lenders from ducking out of their requirements under the new provisions and provides clear and precise information to the borrowers. One statement for each loan would provide clear information for borrowers who may have more than one loan.
I do not see any reason why loans for less than 52 weeks should be excluded. Research from the Department of Trade and Industry and MORI shows that 7 per cent. of those who spend more than 25 per cent. of their income on a loan have a doorstep loan. Therefore, a distortion in the market becomes a real possibility in relation to short-term loans. I will be interested to hear the Minister’s response.

Gerry Sutcliffe: I welcome my hon. Friend the Member for Ochil and South Perthshire (Gordon Banks) to the Committee and I thank him for his probing amendment, which he outlined in his speech. It is a very important issue and I thank him for the way in which he presented the amendment.
The Government have considered carefully the question of providing consumers with clear and relevant information in some detail. We need to strike a balance in this area between providing information and the practical issues involved in lenders complying with the requirements. I believe that we have found a balance between that concern and the practical issues associated with providing the required information.
Agreements for periods of less than one year are generally for smaller amounts of money and are unsecured. Consumers with such agreements often use credit products that provide information about the loan in the form of account books that the consumer retains.
In relation to larger loans over longer periods, there is a particular problem that in many cases no information is provided. We recognise that someone may not receive all the information they need, particularly at critical points when they are at risk of problems. For that reason, the Bill requires all lenders to give consumers early information about arrears and default sums. As I said earlier, the Government believe that that policy recognises a balance between providing information and the administrative burden on lenders.
The amendment would require lenders to repeat a lot of the information that consumers already have in a different form. It would also require lenders, many of whose businesses are at the smaller end of the scale, to issue statements at a specific time in relation to the specific terms of each agreement. That could pose difficulties for some small lenders with limited administrative resources, which are particularly common in this sector.
Imposing such a burden could limit the range of products available to consumers by decreasing the flexibility of the product on offer and increasing the price, which could disadvantage those consumers who seek short-term credit. Lenders whose agreements last for more than one year will be required to provide annual statements. I agree with my hon. Friend that lenders should be transparent in all of their dealings with consumers and I strongly encourage that. I do not believe that the amendment balances the interests of consumers in receiving information with the administrative burden on lenders that would be created.

John Battle: I sympathise with the proposal of my hon. Friend the Member for Ochil and South Perthshire. We sometimes use the word “transparency”, which suggests that a formal letter goes to someone. I think that it is a question of communication with human beings. The only other post that people with loans from doorstep lenders get through their letterbox tends to be pizza notices or formal demands. Lenders should communicate with people who have borrowed in a human way, so that they understand the nature of the contract into which they have entered, and they get help to work through it. Rather than simply saying to lenders, “Be transparent”, and the lenders then sending people a formal notice that one needs a lawyer to interpret, the lenders should put in some effort to communicate with people as human beings, as we politicians do, dare I say it, when we try to communicate with the electorate through notices and letters. The lenders have a responsibility to help people through a contract, and not just to load more on to them.

Gerry Sutcliffe: I do not disagree with my right hon. Friend. That idea is at the heart of what we are trying to achieve with the Bill. Most lenders act honourably when giving information to consumers and make sure that people know what they are letting themselves in for with such agreements.
Alongside the Bill, there are issues of consumer education and support, including debt advice or money advice . Through the financial inclusion fund, £45 million will be made available to increase the awareness of such issues. I agree with my right hon. Friend that the people who get themselves into the most difficulty need support at the earliest stage. They need to be made aware of the difficulties that they will face should they not be able to make the repayments on what may be considered to be a small debt, so that they do not get into a cycle of problems that makes matters worse. We are committed to ensuring that we protect the vulnerable consumer, but we must strike a balance, because if small lenders cannot stand the administrative burden, the product will be removed and the very people whom my right hon. Friend wants to see supported and able to get credit will not get it.
My hon. Friend the Member for Ochil and South Perthshire has made his point in his amendment. We think that we will achieve that through the Bill, through the powers of the Office of Fair Trading and through responsible lending, about which the Committee feels strongly and to which we will return later in our deliberations. I hope that he will withdraw his probing amendment and accept the assurance that the very people whom he is trying to protect will be protected in the later clauses that we shall discuss during the passage of the Bill.

Norman Lamb: I am certainly very sympathetic to the intention of the amendment. I think that it was a Liberal Democrat member of the Committee last time around, the former Member for Richmond Park, who tabled a similar amendment.
The Minister mentioned that people with short-term loans are often aware of the amount of their borrowings at any particular stage because of their possessing an account book. However, the evidence that I have seen suggests that often the account book is very confusing to the debtor, that it contains several loans, and that understanding how much is due on any particular loan can be complex. I am not entirely sure that the Minister’s response is sufficient to ensure clarity for people on low incomes who are borrowing over a short period. The hon. Member for Ochil and South Perthshire is right: it will often be those on the lowest incomes taking out short-term loans who will not be caught by the provision requiring an annual statement.
Considering the wording of the amendment, I am concerned that a loan for one month would presumably require a statement after two weeks. That seems to be a bit over the top, and it seems likely to be unworkable.

Gordon Banks: The amendment concerns loan agreements in excess of one month.

Norman Lamb: I take the point, but for a loan for six weeks or two months, it is perhaps too onerous to require a statement halfway through such a short period. I am not convinced that in a vote I would want  to support the amendment. None the less, the Minister must do more to encourage the industry to ensure greater transparency for people taking out short-term loans of this sort.

Gerry Sutcliffe: This is clearly an area of concern, but I am not sure that getting a statement helps the individual in the totality of their situation. What does getting a statement mean, particularly for people in vulnerable situations?
What is important is the principle of responsible lending. Later, we will discuss the unfair credit test and reform of that test. The lender will have to show that they are lending responsibly to the consumer; it will be the lender’s responsibility to prove that they acted fairly. That is where the safeguards will be, rather than in someone getting a statement.
People who are in a difficult situation because they have outstanding loans and who want to borrow less than £100, for instance, tend just to go for the money. They do not think about the consequences of the cumulative loans that they have. For them, merely getting a statement of what their position is with each of those loans is not an issue.

Norman Lamb: Is the Minister saying that, in terms of the test of reasonableness and the unreasonable relationship and so forth, lenders ought to take note of his comments about providing greater clarity in the account books that they supply to borrowers in such circumstances?

Gerry Sutcliffe: That is clearly what I am saying. In Committee, we have an opportunity to make it clear what we expect of the industry. Account books could be clearer. I am asking for that; I am not regulating for it. I am saying that that is what the industry should do, particularly the smaller sector of it. However, we must not add too much to its burdens. We must get the balance right. If we consider the Bill as a whole, it is clear that we are trying to deal sympathetically with certain sorts of people such as vulnerable consumers, but we do not want to create a burden that takes lenders out of the marketplace, which will, presumably, affect those people.
On the basis of what I have said and the assurances I have given, I hope that my hon. Friend the Member for Ochil and South Perthshire will withdraw the amendment.

James Brokenshire: Proposed new section 77A states that it does not apply to “a small agreement”. That term refers back to the Consumer Credit Act 1974. The original sum was £30, although I suspect that it has increased. I ask the Minister to provide clarification on what is meant by “a small agreement”, especially in light of the rightful concerns raised in this discussion about protection for vulnerable people—people who are struggling to meet payments. If the intention is for this measure not to cover “small agreements”, we should all be clear about precisely what that means.

Gerry Sutcliffe: By magic, the figure approaches; the sum has gone up from £30 to £50.

Gordon Banks: As my hon. Friend the Minister said, this is a probing amendment. One of the issues that has come up in our discussion is the clarity of loan books, and I am glad that the Minister responded to that. We have all seen examples of such books; USA residents, somewhere in Philadelphia, are probably required to understand some of them.
There is another point to be made: a simply worded statement provides clarity. The amendment has the support of a number of bodies, such as Citizens Advice Scotland, the Society of Chief Officers of Trading Standards, the Scottish Consumer Council, the Church of Scotland and Debt on our Doorstep. However, as I am happy with the Minister’s response, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Charles Hendry: I beg to move amendment No. 9, in clause 6, page 4, line 37, at end insert—
‘(2A)For the purposes of this section and any regulations made under subsection (2), the requirement to give a statement is satisfied if the creditor, with the debtor’s agreement, makes available electronically, in a manner which is freely accessible to the debtor, the content prescribed by the regulations.’.
The Bill rightly sets out to provide consumers with more information, and more regular information, regarding their credit agreements. The credit market is complex and increasingly diverse. It is crucial that we take every step to empower consumers to ensure that they have equal standing and are not dominated by what may often seem to be an imposing industry. I agree with the right hon. Member for Leeds, West about the importance of clarity, of writing information in a way that people will understand and of the delivery method, which I want to return to later.
By placing a requirement on creditors in regulated fixed-sum agreements to provide debtors with annual statements, the principle behind clause 6 is a positive step towards helping to achieve that status for consumers. However, we consider that the position can be improved still further. Amendment No. 9 recognises that many people’s preferred form of correspondence is electronic, and that will be the case even more so in years to come. The amendment allows annual statements to be provided electronically if the consumer agrees, which saves both time and cost and reflects how people increasingly live their lives. Otherwise, the Bill will look extremely anachronistic in 30 years.
Many of us already choose to arrange our personal finances electronically, including our pensions and banking, so it would be peculiar for us not to allow consumers the same access to service for their credit agreements. Indeed, it would help debtors to keep track of their agreements, helping them to maintain payments and to avoid going into arrears. That must surely be a positive step.

Norman Lamb: The amendment seems an eminently sensible proposition, although I would like clarification from the Minister on whether the wording of the clause as it stands allows for electronic statements. I note the reference to the capacity to make regulations to provide for the form of statement, and it may be that provision exists without the need for the amendment.

Gerry Sutcliffe: I heartily agree with the hon. Member for Wealden. The amendment is excellent and, had it been necessary, I would have accepted it. I understand the sentiment behind it, but it is unnecessary because, as the hon. Member for North Norfolk confirmed, new section 77A(1) says that the creditor shall give the debtor a statement. In section 189 of the Consumer Credit Act, “give” is defined as
“deliver or send by an appropriate method”
and therefore covers electronic communication.
The amendment was well thought out, but the Bill already contains a relevant provision. That being the case, I hope that the hon. Gentleman will withdraw his excellent amendment.

Charles Hendry: There cannot be many examples of excellent amendments having to be withdrawn, and to be called “eminently sensible” by the Liberal Democrats is also unusual. However, we are reassured by the Minister’s comments and, in the light of those positive comments, we will claim this as a massive triumph for the Conservative party. Consensus has broken out. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Charles Hendry: I beg to move amendment No. 10, in clause 6, page 5, line 16, leave out from ‘extent’ to end of line 19 and insert ‘specified by Regulations; and’.

David Taylor: With this it will be convenient to discuss amendment No. 11, in clause 6, page 5, line 36, at end insert—
‘(8A)Regulations may make provision about the extent of the debtor’s liability to pay any sum of interest under subsection (6).’.

Charles Hendry: The amendments are essentially probing, seeking further clarification from the Minister on how the measures will work in practice.
It is of course right that, should the creditor fail to meet the requirement to issue an annual statement to a debtor, they should not be entitled to enforce the agreement during the period of non-compliance and that the debtor should not therefore be liable to pay interest on the agreement during that period. That is only fair, and I believe that it sets the right balance of relationship between creditor and debtor. It encourages responsibility on the part of the lender and emphasises the rights of the consumer, which is fundamentally what the Bill aims to achieve.
However, the current wording of proposed new subsection (6)(b) seems unclear in determining how the interest that the debtor will not be liable to pay will be calculated. As the Minister is fully aware, there are many different means by which interest can be  calculated and, in many forms of agreement, credit may be structured so that the interest is not spread evenly over the period of the loan. He will be aware that in some loans the repayments are front-loaded and in others, especially for car purchases, there is a balloon payment at the end. Without a clear procedure for calculating the non-liability of the debtor, there is a risk of producing different effects on varying credit products and therefore triggering market distortions.
Will the Minister explain exactly how the measure will work in practice? I have no problem with the Government’s intention behind the proposal, but we must ensure that it will not cause unintended distortions.

Gerry Sutcliffe: I am grateful to the hon. Gentleman for the way in which he introduced the probing amendments. It gives me the opportunity to explain how new section 77A will work and I hope that that will deal with his worries about the clause.
New section 77A(6) is clear. The creditor, if he has failed to provide an annual statement, is not entitled to require the debtor to pay any sum of interest, calculated by reference to the period of the creditor’s non-compliance, or any default sum either due or incurred during the period of the creditor’s non-compliance. As for the interest, the calculation is the amount that could have been charged by the lender under the agreement for the period of non-compliance. That period of non-compliance is the period from the date on which the creditor was required to provide the statement until the time at which the failure to provide the statement is remedied and the statement is given to him.
The key to the provision is to require creditors to provide annual statements and, if they do not, to penalise them by denying them the right to claim any interest or charge any default sums during the period in which they fail to provide the required annual statement. Given that the penalty, which applies to a failure to comply with the provisions, is appropriate and desirable, it should appear clearly in the Bill. I ask the hon. Gentleman to withdraw the amendment.

Michael Penning: Will the Minister clarify “default sums”? I accept that the debtor would not have to pay interest or default sums to the creditor, but proceedings could have started and costs would have been incurred by the debtor. Does anything in the Bill prevent those costs from being incurred by the debtor?

David Taylor: Order. The sitting will have to be suspended for a few moments. We have problems with the microphone.

Sitting suspended.

On resuming—

David Taylor: The microphones are operational again.

Michael Penning: Will the Minister clarify whether costs that arose outside of the agreement—the costs of legal proceedings or court costs—will be incurred by the debtor?

Gerry Sutcliffe: I am grateful to the hon. Gentleman for raising the issue of what the default sum means in terms of other costs. Under clause 18, the default sum will include any sum that the lender requires the debtor to pay when the debt has been breached by the debtor. That can include costs and charges, so the hon. Gentleman is right: any additional costs or charges will be included in that.
I hope that, with those explanations, the probing amendment can now be withdrawn.

Charles Hendry: I am grateful to the Minister for those clarifications. In the light of them, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 ordered to stand part of the Bill.

Clause 7 - Further provision relating to statements

Question proposed, That the clause stand part of the Bill.

Charles Hendry: Again, the issue is about a lack of clarity; it is disappointing that we could not have had more detail and clarity. The explanatory notes state that
 “Regulations made by the Secretary of State may require creditors to include specified information, e.g. about the consequence of failing to make repayments or only making minimum repayments, in statements issued under section 78(4) of the 1974 Act.”
We are being asked to approve that without knowing much detail about what is involved. We are clearly only months away from this information being put into the public domain and I do not find it plausible that the Minister has not already got information and guidance on what is intended to be included in this area. Will he give us more information on that and on whom is to be consulted before the document is produced?

Gerry Sutcliffe: I apologise to the Committee. It was not my intention to try to run this thing through. I was trying to be helpful to the Committee in moving the clauses formally; if there had been no questions, we could have moved on. The hon. Gentleman is right to raise the issues of the specific warnings, what we are going to tell consumers and what we propose.
On the question of whether we will introduce a specific warning to consumers about the implications of their not making more than minimum repayments, I should say that the clause is drafted in broad terms and could permit such a warning to be required. We considered whether we should specify a tailored warning of the type suggested. Warnings tailored to the individual’s consumer circumstances would be expensive for lenders to implement as they would require extensive system changes and costs. However,  the power is broad enough to allow us to specify a warning of that sort in future, when systems may be capable of doing so more cost effectively.
What kind of warnings do we propose? We propose to require generic warnings on all statements about the implications of only making minimum repayments or not making the required repayment. To warn about the consequences of failing to make the minimum repayments, we are considering using this statement:
 “Paying only your minimum repayment will substantially increase the amount that you must repay and the time that it takes to pay it. You may also incur additional charges, which may be added to your balance.”
To warn about failing to make a repayment, we are considering the following statement:
 “Failure to make your minimum repayment can mean that you are in breach of this credit agreement and could result in the creditor bringing legal proceedings against you. This could have a detrimental effect on your credit rating and affect your ability to borrow in future.”
 We shall consult on those statements and ensure that we get the form of wording precisely right and that the borrower understands the situation. With that clarification, I hope that clause 7 can stand part of the Bill.

Question put and agreed to.

Clause 7 ordered to stand part of the Bill.

Clause 8 - OFT to prepare information sheets on arrears and default

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: I shall spend a little time on clause 8 because it is about the powers of the Office of Fair Trading, and I know that hon. Members raised that issue on Second Reading.
The Government are committed to ensuring that all consumers receive clear, concise, independent information about debt management options, including debt advice. The best times for that are when consumers are told about being in arrears and when they receive a default notice. The clause requires the Office of Fair Trading to prepare and publish information sheets to be included with notices about arrears and default notices. Those sheets will be published by means of a general notice.
The arrears information sheet will include information to help debtors and hirers who receive arrears notices under clauses 9 and 10. The default information sheet will include information to help debtors and hirers who receive default notices under the 1974 Act. The type of information on each sheet may be specified in regulations made by the Secretary of State, and the Department will consult with interested parties before any regulations are made.
To give creditors and owners time to obtain the new information sheets, proposed new section 86A(5) of the 1974 Act states that a new information sheet will  take effect three months after it is published by the OFT in general notice. Proposed new subsections (6) and (7) state that the OFT may revise the information sheets. A revised information sheet will take effect three months after it is published by the OFT in a general notice.

Charles Hendry: I am grateful to the Minister for setting out in detail what is proposed, but there continues to be a lack of detail on which we can make an adequate decision. Who will the OFT consult with to decide what should be included in the sheets? The Minister says that the sheets may be revised, but how often does he expect them to be revised? Will that be done, say, six-monthly, annually or every five years? Will there be a rolling programme, or will revision be more sporadic?
Can the information be provided on-line, or will it have to provided in writing? Will lenders be able to adapt and amend the OFT sheets, or must they be provided as they are published? Some lenders might see the OFT information as a bare minimum and wish to provide additional information. Will they be in a position to do so or will they have to use the OFT information without adding to it? Perhaps the Minister can say how prescriptive the information sheets will be. For example, will they say that a certain maximum default fee can be imposed? Will they set out in what circumstances early payment could be demanded?
Finally, to pick up on the point that the right hon. Member for Leeds, West raised, the sheets should be clear to all who receive them. How will the information be made available to blind people, for example? How will it be made available to people whose first language is not English? Will the sheets have to be produced in a range of languages, or will the lender be required to find out the first language of the borrower and then determine what language the sheet should be written in? What about people who cannot read very well or who have literacy issues? How will the terms and conditions be made clear to them?

Gerry Sutcliffe: Again, I am pleased about the spirit in which the hon. Gentleman raised those issues, because they are important. It is important that consumers know exactly what their rights are. Consumers should be informed about the consequences of missing payments and that redress needs to happen immediately. That is a message that we cannot communicate enough.
Consumers should receive relevant information about how to manage debt issues at the most appropriate time—when they first fall into arrears or when they are in default. The best way to get the information to them is through the lenders. The most effective time is when a problem first develops, not later. The information sheets are designed to assist consumers who have difficulties paying their loans. The OFT will have to consult interested parties—the industry and the stakeholders who have been identified in consultation on the Bill—and publish the notices, to ensure that the information is both relevant and helpful. The Government want to help consumers with  debt problems. Informed consumers can make better choices. Giving them relevant and helpful information at an early stage will help them to prevent bigger problems from developing.
What kind of information will the sheets contain? Consumers should receive relevant information about how to manage debt issues at the most appropriate time. The information sheets will contain information about the possible consequences of not making payments, including the potential for court action by a creditor.

Charles Hendry: I am sorry to interrupt the Minister when he is in full flow, but will the sheets be issued when the loan agreement is taken out or when people get into difficulties? He has talked twice about the most appropriate time being when someone starts to get into difficulties, but my understanding of the guidance is that the note is from the OFT and would be given to people when they take out the loan so that they know their legal responsibilities and liabilities.

Gerry Sutcliffe: The hon. Gentleman is right—[Interruption.] Clearly, he is not right. To help clarify matters, I shall set out the context of what we are trying to achieve. We want the consumer to be confident and to have more information about the type of products that they are going to borrow. We want the products to be fully transparent and the rates and time scale of the loan to be clear, so that consumers have a great deal of knowledge about what they are letting themselves in for.

John Battle: We have two images of the person taking out a loan. Sometimes we think that they can absorb incredible amounts of information and detail and analyse the fine print, and then are okay. That is not the reality. The hon. Member for Wealden mentioned languages, and the problem relates to the wider issue. Perhaps hon. Members remember that a strong emphasis was placed on the need for financial education for everybody.
We all have briefings from Nationwide, GE Capital and other big lenders who are keen to tell us that they are working in partnership with debt charities, credit action services and consumer credit counselling services. At the front end of the process, when the Chancellor puts up money to help with debt advice, can companies, such as Nationwide and GE Capital, the lenders and the credit agencies be consulted and get together, as they have for this Bill? They could discuss what more they could do to help consumers understand what they are getting into, how they present the material—including in different languages—and other ways of ensuring that there is proper, personal back-up for people taking out loans. I am anxious to reduce debt—

David Taylor: Order. Interventions should be brief.

Gerry Sutcliffe: I am grateful to my right hon. Friend, who speaks with authority on what happens at the bottom end of the credit market where people tend to be in the most difficulty. The whole reason for the Bill and the need to examine the 30-year-old Act was, at  the request of all stakeholders—the industry as well as consumer groups and those people affected by the legislation—to try to create the transparency that appeared to be missing on the products that are available and the details of those products.
Clause 8 is specific to the OFT and the information sheet that will be issued by it. All that lenders must do is to inform people when issues of arrears and default start to happen—that is not at the start of the agreement, as I indicated earlier, but at the default stage.
The hon. Member for Wealden raised questions that I do not have detailed answers to, so I shall write to hon. Members about those issues, such as people with disabilities. If my answers are insufficient, I am sure that he will come back to me on Report. However, we feel that the clause meets the necessary requirements. It was well discussed and consulted on with the industry and stakeholders, and we feel that it is proportionate.

Clause 8 ordered to stand part of the Bill.

Clause 9 - Notice of sums in arrears under fixed-sum credit agreements etc.

Charles Hendry: I beg to move amendment No. 31, in clause 9, page 8, line 16, leave out ‘four’ and insert ‘eight’.
The clause relates to the notice of sums in arrears under fixed-sum credit agreements, and we propose to substitute “eight” for “four”. We support in principle the concept that borrowers should be sent an arrears notice when they have fallen behind with their payments. That would greatly help them in ensuring that they understand that they are in arrears and would enable them to plan to get out of arrears as soon as possible. However, to work effectively, that information must be accurate and relevant. As the Bill stands, the danger is that it might not work as effectively in the interests of the debtor as it should, especially for home credit borrowers.
For conventional credit that is paid monthly, the arrears notice must be issued when the customer is, in aggregate, two months—eight weeks—behind. An aggregate amount of arrears is involved, so if a monthly credit consumer misses one payment and then a year later misses another, he must still be sent an arrears notice. The situation is different for home credit customers, who pay weekly and who are sent an arrears notice when they are a month—four payments—behind.
That fails to recognise the way in which home credit works. Four missed payments is not seen as a problem. Home credit is designed to be flexible. Borrowers pay back a fixed amount, but if they lose their job or their circumstances change, or they simply want to miss a payment for another reason, the length of time they use to pay back the amount can be varied. It will even be changed if it is more convenient for the borrower to miss a week because of a holiday or a birthday. If someone misses two payments over the summer, one at  Christmas and one when a child has a birthday, he must receive a formal arrears notice, even though technically he is not in arrears or in any form of difficulty.
 That raises two issues. The first is the impact on the borrower of being told that they are in arrears when that is not the case. He might simply have been out of the house when the agent called and therefore missed a payment. Nevertheless, he will still be given a formal arrears notice. Telling people who are worried about money and are in debt—that is the reason why they opted for a home credit loan in the first place—“You are now in arrears” in a formal notice, which looks a very legal document to them, is bound to cause great distress and concern.
The second issue relates to the bureaucracy. About 3 million people are home credit borrowers. On average, they are four weeks behind in their payment. The Bill requires all 3 million to be sent a formal letter of arrears. Assuming that the cost of writing, posting and administration is just £1 a letter, that represents an extra £3 million in administrative costs, which will inevitably be passed on to borrowers in the form of higher charges. We are talking about precisely the sort of people who are already worried about the level of charges that they pay.
There is a simple solution. Our amendment would create parity between conventional monthly lending and weekly home credit, making the relevant period two months for both. Where arrears continue for home credit borrowers, that would simply be included in a notification in the required annual statement. Alternatively, the Minister might consider saying that the arrears notice should be required only if the terms of the loan change as a result of the arrears or if extra charges are incurred. The key point is that the people we are talking about have not incurred any greater level of debt or any additional charges and therefore it is misleading to send them a letter saying that they have.
I would also be grateful if the Minister commented on privacy. The consideration applies in particular when children have taken out a loan and are living with their parents. Their parents might not be aware that they have taken out the loan—clearly, we are talking about children over the age of 18. We could discuss whether their parents should be aware, but if a letter comes through the letter box that says, “Important, read this”, parents will want to know what it is about.
The same situation might occur in a relationship, where one partner has not told the other why they have taken out a loan. We may all feel that people should be clear with their partners about why they have done such a thing, but in cases where they have not, we are in danger of intruding on the privacy of their relationship by sending a bold envelope through their letter box telling them that something is wrong. If such a notice does not go in a bold envelope, it might be put to one side or discarded, so that is not a possibility.
Can the notice be delivered electronically? We have discussed that before. How do the notifications need to be delivered? Do they be in the form of a simple letter? Can they be sent by registered post? Do they have to be signed for? How do we ensure that they are received by the right person? In a household of four, five or six students—a house in multiple occupation—that could regularly be an issue of concern. How can we be certain that notifications are received in a way that people will understand? That point relates to people who are blind, who do not have English as their first language, or who have learning issues and learning difficulties. There are many things to consider and I hope that the Minister addresses them.

Norman Lamb: I have some sympathy with amendment’s attempt to address a mischief. It seems to be all about the law of unintended consequences.
 As I understand it, the home credit market often works in such a way that if payments are delayed—perhaps, as the hon. Gentleman suggested, because the debtor is simply out when the collector calls, or because there has been an agreement between them that repayment will be delayed a little—and, cumulatively, four weeks of payments are missed and a notice has to be served, the debtor could end up being caused unnecessary anxiety. If the proposal impinges on the proper flexibility of the agreements, and if the debtor is not actually prejudiced by delayed payments—that is, if the debtor does not have to pay any more and is allowed to pay at a later date—that would be too onerous. There is potential to cause unnecessary anxiety and be overly bureaucratic. Does the Minister accept that there is a genuine concern about how the provision will work? If so, is the amendment a way of addressing that concern, or does he have an alternative approach to ensure that the process is not overly bureaucratic and does not cause unnecessary anxiety to the debtor?

Gerry Sutcliffe: I am afraid that it will come as no surprise to the hon. Member for Wealden to hear that we will not accept the amendment, but that is not because he did not raise many important issues. We looked into the subject at great length in our discussions when developing the proposals and decided to use a similar approach to that taken by the Financial Services Authority regime for mortgages. The regime introduced by new section 86B(1), as set out in clause 9, applies to agreements with monthly payments. While missing only two repayments is appropriate for longer-term agreements with longer repayment intervals, small, short-term loans are different. So simply applying the same timing is not appropriate. For that reason, we have made specific provisions for those short-term agreements.
For agreements with weekly instalments, which are likely to be short-term agreements, missing four repayments will probably to be a significant problem for consumers who rely on that form of credit, for reasons that hon. Members have given.

Charles Hendry: Does the Minister not accept the point that the hon. Member for North Norfolk and I made: that the individual is not prejudiced by being behind in those payments? An extra four weeks is simply added to the time in which the debt is to be paid. There are no charges involved, no extra interest payments and no arrears. To send the person a note saying that they are in arrears is actually incorrect, and can only cause concern to the borrower.

Gerry Sutcliffe: We have to be consistent. I shall come to the point raised by the hon. Members for Wealden and for North Norfolk in a second.
Missing four payments is likely to be a significant problem for consumers who rely on that form of credit. It sends a warning sign, notwithstanding what has just been said. In many agreements, four weekly repayments can equal a significant proportion of the loan.
Our proposals mean that a notice must be provided within 14 days after the fourth missed period. That means that for an agreement with weekly instalments, the creditor will send a statement six weeks after the first missed repayment. The amendment would shift the onus to 10 weeks. We think that that is more harmful and would cause problems.
The purpose of the arrangement is to give consumers early notice of potential problems to allow them to deal with them. Consumers in this sector are often vulnerable, with limited incomes. For that reason, we do not believe that the debtor should be treated in the same way as other consumers. The amendment would treat them in the same way as lenders with monthly repayments. That would potentially mean that these consumers—whom we all agree are often vulnerable—are put at a disadvantage. At this stage we do not intend to prescribe the format of the notices in detail, but the content will be prescribed, and the lender will have to provide the notices in a clear and transparent way.
As for the concern about lenders potentially frightening consumers, and consumers being frightened themselves, we believe that there is scope for the information to be presented in a consumer-friendly way—for example, as a letter rather than as a formal notice. Again, the Department will consult on the issue after the Bill becomes law. So we feel that a safety valve is in place.

Norman Lamb: I shall try one more time. For various reasons—perhaps the debtor was on holiday or out—four payments might be missed in the course of a year. Those delayed payments might not result in any extra payment by the debtor—in other words, no extra interest has been ratcheted up—and they may simply have to be made later. The debtor has in no sense been prejudiced by the later payments. Is not there a case for saying that there is no purpose in sending an arrears notice, because so far as the debtor is concerned, they are not in arrears and have simply agreed with the creditor or lender that they will be paid later?

Gerry Sutcliffe: I do not agree, because the warning signs are there. This part of the Bill is about responsible lending and responsible borrowing. If people are having difficulties, we will make them aware of the warning signs at the earliest stage and given them help and support. That is what we are focusing on.
I accept that no arrears or charges may be incurred, but the amendment would let 10 weeks go by before the debtor is sent a letter. It is six weeks under the Bill—four weeks of missed payments and then two weeks. It does not have to be a threatening default notice; it can be a letter to say that he has missed six weeks of payments. That is proportionate and appropriate, and I would be concerned to go to 10 weeks, because that could cause difficulty.
I do not think that the people who take out these loans will be going on the long holidays that the hon. Gentleman suggested. They will not be in a position to do that.

Norman Lamb: It is an aggregate.

Gerry Sutcliffe: Again, there is a disagreement between us about the period. I understand and accept why the amendment has been tabled, but it would be less of a safeguard.

Norman Lamb: On a point of clarity, I was not for one minute suggesting that people in such circumstances go on four-week holidays. As I understand it, we are talking about four weeks in aggregate. If someone just happens to be out at a football match one week in January, to be out for another reason one week in February, to be on holiday at Easter and then to miss a payment for some other reason, that will be four weeks. A letter will then arrive, but from the individual’s point of view, they will not be in arrears because they have an agreement that the payments will be made the following January, February, March and April. I do not understand what the problem is.

Gerry Sutcliffe: I think that there is a problem. There is the potential to allow that individual to think that it is not appropriate to make payments regularly as per the agreement; that is where the difficulty comes in. If we allow that in one part of the Bill, we will undermine what we are trying to do throughout. People must be responsible as regards paying loans on time. That is the basis of what we are trying to achieve.
The home credit relationship is very good. Usually, somebody comes by every week and a relationship develops. That is a cause of concern in some areas, and a competition inquiry is looking at sectors of the home credit market. On balance, however, the approach in the Bill is correct and the amendment strays too far.

Charles Hendry: I am not persuaded by what the Minister has told us so far. As the hon. Member for North Norfolk said, we are talking about aggregate missed payments, so they could be missed over a period of nine or 10 months, or even longer. Missing four payments on the trot is rather different from missing sporadic payments over a period of time.
Furthermore, because we are talking about home collection, the reasons why those payments have been missed will be known early on. Somebody may say, “I’m not going to be able to pay next week because I’m going away” or, “It’s a child’s birthday and I’m going to be doing something different.” The person collecting the payments will sometimes know the reasons for a missing payment in advance, or perhaps  just a week later. If somebody misses two payments that were to be made by standing order or direct debit, it will take longer for the people who gave them the loan to understand the cause. So I am not persuaded by the Minister’s argument.

It being twenty-five minutes past Ten o’ clock, The Chairman adjournedthe Committee without Question put, pursuant to the Standing Order.
Adjourned till this day at Two o’clock.